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Gratuity Rules Are About To Change, But Should You Be Worried?

Gratuity rules are about to change. Come Parliament’s Monsoon Session, gratuity is one topic our legislators will be talking upon. The new bill plans to increase the limit of gratuity amount you can accumulate from Rs 10 lakh to Rs 20 lakh. The Union Cabinet is yet to scrutinise the new gratuity bill, which will then be tabled, discussed and passed in the Parliament. However, before all that happens, do understand what the new gratuity rules may mean for you. Here’s what you should know about the new gratuity rules.

New Gratuity Rules

New Gratuity Rules – What You Should Know

#1 – Decreased tax liability

Once the new gratuity rules comes into effect, your tax liability will come down. After all, in earlier scenario, you were asked to pay tax on gratuity accumulated above Rs 10 lakh. Now, with the increased limit, at least you can rest assured that your tax liability will kick in later now.

#2 – No change in payout duration

Till date, an employee is eligible for gratuity after completing at least five years of continuous service with an employer. The new bill does not seem to address this bit. The worker unions had demanded this rule to go, but it does not seem like it will be going anywhere.

#3 – Hike in limit for government employees Since Jan 1, 2016

The new rules are more for workers in the private sector. The central government employees’ taxable gratuity amount limit was hiked as a part of the 7th Pay Commission’s recommendations. Moreover, it has been in effect for central government employees since January 1, 2016.

#4 – No change in calculation method

The current formula used for calculating gratuity considers time period of six months or more as one year. As per this method, two employees who joined just two months apart from each other, will likely take home different gratuity amounts. This is something the new bill does not touch upon.

#5 – Higher gratuity payout in employer’s hands

Another aspect to not have been touched upon in the new gratuity rules is this. It will still be in the employer’s hands whether to pay an employee higher gratuity amount or not. For employees in mid-senior and higher positions, it may not matter much. For low income employees or daily wagers, it means that they get just the bare minimum gratuity benefit that law affords them. Looks like a reason for worker unions – government to talk about.

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